Is Greece the Future of Viet Nam, China, EU, France, the PIIGS and all ineffectiv​e and inefficien​t “command economies” worldwide – 10/21/2011

For Your Entertainment (FYE)

http://www.cnbc.com/id/44944435
http://www.mckinsey.com/locations/athens/GreeceExecutiveSummary_new/pdfs/Executive_summary_English.pdf

“Within the McKinsey report, however, there are two additional data points that explain why more hours worked by Greeks haven’t led to a growing economy.

First, Greece has the lowest labor participation rate in all of Europe — just 66 percent of the employable population have jobs, compared with 73 percent in the European Union and 70 percent in Southern Europe.

Second, not only are fewer Greeks working, those who do are far less productive: A Greek worker’s productivity comes in at $35 an hour, compared with $49 an hour in the EU, $55 an hour in Central Europe, and $58 and hour in the U.S.”

 

” Put it all together and it led McKinsey to one inescapable conclusion: “A relatively smaller percentage of Greeks work longer and harder hours than their European peers to support a generally unproductive system.”

Therein lies the problem—the Greek economy is uncompetitive, and until that changes it will be unable to grow at a sufficient rate to generate enough tax revenues to pay its bills.”

 

“McKinsey paints a vivid picture of why the Greek economy is so uncompetitive — primarily, its extensive bureaucracy and rigid labor rules. Both are strangling Greece’s ability to compete in a global economy, whether in the shipping industry, tourism, or even exporting its high-quality olive oil and famous yogurt.”

 

“Chrysochoidis adds that the ministry has identified 72 additional obstacles to entrepreneurship and has introduced new legislation that will eliminate them.

Among those obstacles are the role the government plays in many sectors of the economy — either through outright ownership of assets, such as a utility; price controls; and high barriers to entry, such as strict limitations on the number of players in a profession, and/or difficult licensing requirements, according to the McKinsey report. Add to all that very tough labor restrictions on large enterprises.”

 

” The result is that very few businesses have been able to get started or grow in size, and among those that do small family-owned businesses still dominate — 30 percent of manufacturing employment in Greece is in firms with nine or fewer employees. In Italy, that number is 15 percent, while in Germany it’s just 5 percent.

Without what economists call “economies of scale,” such as the advantages achieved when you have a large factory versus a small one, it is impossible to achieve higher levels of productivity. That means lower profitability and fewer jobs — something desperately needed in a country where unemployment is at 16 percent.”

 

” “Cumbersome licensing processes and a volatile tax framework discourages investments,” according to the McKinsey report.”

 

“McKinsey also takes aim at the power of unions in the country and the collective bargaining agreements struck over time. Greece, because of its location on one of the largest intercontinental routes, ought to be a good place for cargo port hubs. Yet the country is losing customers to Bulgaria, Turkey, and Romania, because they offer “better operational stability (e.g. fewer non-operating days due to strikes),” the report said.

Perhaps the most difficult hurdle for Greece to overcome, at least politically, is the size of the public sector versus the private sector.

“We cannot serve this huge public economy,” said Chrysochoidis.”The small private sector cannot serve the huge public sector.””

 

“In June, Dimitri Papalexopoulos, the head of Titan Cement, one of the largest publicly traded companies in Greece, said the country needs to reduce the size of the public sector, and “take a hatchet to this bloated system that pervades all economic activity, cut it down, reduce regulatory burden, (and) cut red tape.””

 

“Downsizing the public sector is going to be enormously difficult, because the mere notion violates a long-held social compact between the government and the Greek people. The Greek Constitution states that once you are an official government worker, you have a job for life. This rule is the result of a well-intentioned labor reform from early last century—at the time government workers were fired every time there was a change in the party in power.

The government’s attempts to lay off a mere 30,000 workers out of 800,000 is already meeting stiff, and sometimes violent, resistance.”

 

“For the most part, the public sector has stopped functioning already: Garbage collectors have stopped collecting garbage; tax collectors have stopped collecting taxes; and the permitting office isn’t issuing permits. The city is set to run out of gasoline in a few days because workers are on strike. (These are known as “white strikes,” when employees go to the office but don’t actually do any work.)”

 

“The leader of one of the nation’s Communist parties refutes the notion that the government sector is too large. Alexis Tsipras, leader of the Syriza coalition for the radical left, says the government is just too inefficient.

McKinsey agrees: The report found that northern European countries have even larger governments relative to their sizes—however, they’re far more efficient.

In addition to contributing to a lack of efficiency, giving government workers a job for life has led to another tough economic consequence — Greece has the lowest employment turnover rate in Europe, the sign of a stagnant economy.

It contributes directly to high levels of youth unemployment, which minister Chrysochoidis acknowledges: “Imagine that in Greece we have 45 percent of young people unemployed,” he said. “It’s a defeat for Greece because the economy could not employ and absorb those people.””

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